The Zacks Analyst Blog Highlights: Gap, Ford, General Motors, TRW Automotive and Honda Motor

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May 23, 2011, 09:30 ET

CHICAGO, May 23, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Gap Inc. (NYSE: GPS), Ford (NYSE: F), General Motors (NYSE: GM), TRW Automotive (NYSE: TRW) and Honda Motor Co. (NYSE: HMC).

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Here are highlights from Thursday's Analyst Blog:

Gap Hit by Costs, Lowers Outlook

Gap Inc.'s (NYSE: GPS) first-quarter 2011 earnings of 40 cents per share declined 11.1% from last year's 45 cents, while the earnings came a penny ahead of the Zacks Consensus Estimate.

The drop in quarterly performance of the company was primarily attributable to sluggish top-line performance coupled with the rise in input cost.

Quarter in Detail

During the quarter, net sales inched down 1.0% to $3,295.0 million from $3,329.0 million in the year-ago quarter. Same-store sales plummeted 3.0% for the quarter versus an increase of 5.0% in the prior-year quarter. Gap reported a decline in same store sales across all brands.

The same-store sales of Gap North America, Old Navy North America, Banana Republic North America and International brands inched down 3.0%, 2.0%, 1.0% and 6.0%, respectively. However, total revenue beats the Zacks Consensus Estimate of $3,284.0 million.

Quarterly gross profit fell 6.9% year over year to $1,304.0 million, and gross margin contracted 250 basis points (bps) to 39.6%. Operating expenses, as a percentage of sales, increased marginally by 10 bps from the prior-year quarter to 27.9%. Accordingly, Gap's operating income plunged 22.8% year over year to $233.0 million, while operating margin fell 200 bps to 7.1%.

Balance Sheet and Dividend

Gap ended the quarter with cash and cash equivalents of $2,417.0 million compared with $2,056.0 million in the year-ago period. In first-quarter 2011, the company deployed $548.0 million of cash toward share buybacks and $127.0 million for capital expenditure. Moreover, the company has paid a quarterly dividend of 11.25 cents, up 13.0% from the prior-year quarter.

Store Count

During the reported quarter, Gap opened 25 stores and shuttered 26 locations. In fiscal 2011, the company now expects to open net 75 new stores, up from its earlier guidance of 65 stores. The company ended the quarter with a total of 3,245 stores.

Guidance

The company is apprehensive regarding the operating margin in 2011 owing to cost inflation. As a result, the company has lowered its fiscal 2011 earnings guidance in the range of $1.40 to $1.50 from the earlier expectation of $1.88 to $1.93 per share.

Unemployment Down in 39 States

Geographically, the decline in unemployment has been widespread, but it still remains very high in most of the country. In April, the unemployment rate fell in 39 states and rose in three (plus DC). Relative to a year ago, the unemployment rate is down in 46 states (plus DC) and up in just three.

This is somewhat of a surprise, since the overall unemployment rate was 9.0% in April, up from 8.8% in March. The widespread declines from a year ago are not as unexpected, as the national rate was at 9.8% a year ago. The mystery deepens when one considers that the three with rising unemployment rates are not exactly population giants: Mississippi, Tennessee and Alabama.

Results by State

The only state where unemployment is at its high for the cycle is Louisiana. Only six states still have double-digit unemployment (down from nine in March). The number of states with double-digit unemployment peaked at 19. Eight states are close to what could reasonably be called full employment with unemployment rates at 6% or less.

Unfortunately, lots of people live in the high unemployment states like California (11.9%) and Florida (10.8%) and not that many live in the low unemployment states like North Dakota (3.3%) and Nebraska (4.2%).

The largest drops in the unemployment rate for the month were in Nevada, down 0.7 points to 12.5%, New Mexico, down 0.5 points to 7.6%, and Oklahoma, down 0.5 points to 5.6%. Thus there does not seem to be a relationship between the level of unemployment last month and the drop in April.

The largest year-over-year declines seemed to be related to states with a lot of Auto industry exposure. Michigan has seen its rate fall 2.9 points, but it is still high at 10.2%. Nevada doesn't have a lot of Auto industry jobs, but it has seen its unemployment rate fall 2.4 points over the last year, but at 12.5%, it is still the highest in the country.

Indiana saw a 2.3 point drop to 8.2% while Illinois was down 2.1 points year over year to 8.7%. Ohio saw a 1.8 point drop to 8.6%. The rebound at Ford (NYSE: F) and General Motors (NYSE: GM) has meant not just more jobs at those firms, but at the major suppliers like TRW Automotive (NYSE: TRW).

Honda Recalls Civics Again

Honda Motor Co. (NYSE: HMC) announced that it would recall 1,156 units of 2012 Civic compact car due to its defective fuel line. The recall would include many unsold units of the vehicle, which were put on sale earlier this spring.

The automaker revealed that the vehicles' fuel line could possibly leak due to a manufacturing defect. However, it has not yet received any reports of injuries or fires related to the defect.

Honda will begin notifying the customers about the recall from May 27. It will repair the fuel lines free of cost.

This is the second time in the year that Honda has recalled Civic due to the same problem. In March, the automaker recalled 21,700 units of the vehicle that belong to the 2011 model year.

Honda revealed that a plastic case that covers a valve in the fuel pump module could break or crack in the Civic. This, in turn, could result in a fuel leak in a rollover crash, thereby leading to a fire. More than 18,000 Civics were recalled in the U.S. and more than 3,600 units in Canada.

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